Global Markets Overview - 4/8/14

With the NASDAQ logging its worst three days of trade since November 2011 last night, the growing roar of the bears was easy to see. The bears point to several reasons for their calls on tech stocks, including technical breakdowns, over valuations and the fact that these stocks have been some of the best performers of the last 24 months; profit is glaring.

With very little on the macro news front and the US earnings season not starting in earnest until Friday, the bears are likely to overwhelm most of the overvalued stocks on the NASDAQ in the next three days.

Most hedge and fund managers are running the ruler over estimated earnings heading into the results, which suggests further sell-offs are likely as estimates take the harsh US winter into account and therefore take further profits off the table.

The pull-back in the US high growth spaces of technology, consumer discretionary and social media is completely understandable. The NASDAQ is trading on 31.5 times actuals and on a forward-basis it is trading on 20.1, which is substantially lower and could be confirmed over the coming weeks; however both are still above the historical P/E of 17.1.

Compare this with the S&P which is by its own standard slightly elevated at 17 times compared to its historical average of 13.2, but there is still fundamental value in the S&P and the NASDAQ looks to be at fair value to overvalued.

Australia has similar valuation issues; Seek for example is a fantastic company that has continuously evolved, sees earnings growth routinely in the double digits, along with net profit. It has a growing international footprint that is likely to only get bigger in the future. It was one of the best performers in the calendar year of 2013, adding 90.7% and year-to-date SEK is up 23.8% after delivering brilliant earnings in the first half. However, from a stock price perspective it looks to have everything priced in. At 27 times forward earnings versus its historical average of 17.8, the fundamentals do seem expensive, and profit is ripe for the picking having reached a record all-time high in March.

Ahead of the Asian Open

The Dow and S&P futures (from the close of the Australian market) lost 0.8% overnight, yet the SPI futures are only off 0.34% over the same period, suggesting the sell-off in Australia may be moderate compared to the overseas leads. We are therefore calling the ASX down 16 points on the 10am bell (AEST) to 5398 as we again hover around 5400 points as we await the return of China from holidays.

Japan is also going to be an interesting market to watch today as the Bank of Japan takes centre stage with its rates decisions and press conference. There has been a lot of talk about extra stimulus from the BoJ, however I believe this to be unlikely as current data doesn't justify a move coupled with the fact that April is the start of Japan's financial year. USD/JPY has been moving lower since Sunday and that does not spell good news for the Nikkei. If the market sees the BoJ statement as mildly neutral or if it cannot convey it has the ability for a further move if required, the pair could fall further, heaping more pain on Nikkei.

China is back online today after the Ching Ming festival, and commodity trading should return to normal values. Interestingly iron ore continues to edge higher up to US$117.20 a tonne; the muted losses in the ASX look like it will be supported by the material plays, despite the fact gold slid back below US$1300 an ounce. BHP's ADR is pointing higher, if only just, and was part of the reason the ASX only dropped 0.2% yesterday.

Asian markets opening call

Price at 8:00am AEDT

Change from the Offical market close

Percentage Change

Australia 200 cash (ASX 200)

5,398.00

-16

-0.29%

Japan 225 (Nikkei)

14,692.50

-116

-0.78%

Hong Kong HS 50 cash (Hang Seng)

22,325.70

-51

-0.23%

China H-shares cash

10,153.30

-3

-0.03%

Singapore Blue Chip cash (MSCI Singapore)

360.70

-0

-0.12%

US and Europe Market Calls

Price at 8:00am AEDT

Change Since Australian Market Close

Percentage Change

WALL STREET (cash) (Dow)

16,263.40

-138

-0.85%

US 500 (cash) (S&P)

1,846.72

-16

-0.86%

UK FTSE (cash)

6,599.40

-51

-0.78%

German DAX (cash)

9,498.10

-110

-1.15%

Futures Markets

Price at 8:00am AEDT

Change Since Australian Market Close

Percentage Change

Dow Jones Futures (June)

16,193.00

-132.00

-0.81%

S&P Futures (June)

1,840.38

-15.25

-0.82%

ASX SPI Futures (June)

5,390.00

-18.50

-0.34%

NKY 225 Futures (June)

14,747.50

-112.50

-0.76%

Key inputs for the upcoming Australian trading session (Change are from 16:00 AEDT)